Alpha CEO sees hope in tough times for coal

WAYNESBURG – During the last six months, Alpha Natural Resources has undertaken a major restructuring that included the idling of more than 40 mines as it and other U.S. coal producers grappled with a shrinking domestic coal market.

“I won’t gloss over it; it’s tough right now,” said Kevin Crutchfield, Alpha’s chairman and chief executive officer, who visited Greene County Thursday and sat for an interview. “But I believe I can see a path for hope, based on realism and based on what we see happening globally.”

The U.S. coal industry has always primarily focused on selling its product in the domestic market, Crutchfield said. That will have to change.

“The U.S. market is shrinking, but globally coal is still the fuel of choice,” he said. The Energy Information Administration projects coal will overtake oil as the number one energy source globally in the next three or four years.

“The question for us and other U.S. coal producers is how we take our coals and play internationally,” Crutchfield said. “That’s a new game for the U.S. coal industry … and we’re going to have to learn it very quickly under, frankly, some level of duress.”

Alpha, which now operates 104 mines, is the country’s second largest coal producer by revenue and third largest by production. It also is the largest supplier of metallurgical coal used in steelmaking. The company has two mines in Greene County, Cumberland and Emerald, which together employ about 1,400 workers.

The mines, which are the company’s only two longwall mines, have for the most part escaped cutbacks the company implemented in the fall to address what Crutchfield called “transformational” changes affecting the industry.

Those changes “hit hard and fast” in late 2011, as electric utilities announced the closing of coal-burning power plants because of stringent environmental regulations and it became apparent cheap natural gas was here to stay.

Coal at its peak held about 52 percent of the domestic market for electric power production but saw that share decline to about 32 percent last April. “It and gas had equal market share. To my knowledge, that was the first time it ever happened,” Crutchfield said.

Coal has since regained some of the market, it’s now about 40 percent, but the new reality is that the domestic market is shrinking and no relief is expected either in terms of natural gas prices or environmental regulations on burning coal.

“The coal footprint is going to get smaller, the question is how much smaller,” Crutchfield said.

The company announced the restructuring in September, which involved the idling of a number of mines. Alpha had produced 125 to 130 million tons of coal annually. It recently projected annual production of 85 to 90 million tons. “That’s a big structural reduction for us,” Crutchfield said.

The company’s mines in central Appalachia took a “disproportionate share” of the reductions because of their costs in relation to natural gas prices.

In northern Appalachia, which includes Pennsylvania, Alpha’s utility customer base also declined, “but not to the degree of southeastern utilities that are dependant on central Appalachian coal,” Crutchfield said.

In announcing its restructuring, the company also set forth goals that included maintaining its focus on the sale of metallurgical coal. “We think the fundamentals for steel globally over the next decade or two are pretty positive,” Crutchfield said.

In regard to its thermal coal, which is burned at power plants, the company will focus on becoming more competitive in a smaller U.S. market but also attempt to sell more coal internationally.

The company normally exports about three-quarters of its metallurgical coal, which last year was about 15 to 16 million tons, Crutchfield said. It increased the export of thermal coal from 2 to 6 million tons last year.

Emerald and Cumberland primarily produce thermal coal, and part of the mines’ production last year went to the export market, Crutchfield said.

The quality of coal produced by Emerald and Cumberland is “very desirable” to export markets, he said. The two mines also are probably the two most productive of the company’s big underground mines in terms of ton per man hour cost structure, he said.

“These are excellent coal mines. They’ve got great track records,” Crutchfield said. “The question is, in the long term, repositioning them to be able to participate in a smaller U.S. market and figuring out how to move these coals into the desirable market in the Asian region.”

The restructuring that began in September is substantially completed, Crutchfield said, “but then again, the market is going to do what it’s going to do, and we have to be prepared to be responsive to the marketplace.”